Southern California Economy Not Keeping Up

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One of Orange County's top executives asked me over lunch recently why Southern California has not seen anything like the kind of tech boom now sweeping large parts of the San Francisco Bay Area. In many ways, it is just one indication of how this region – once seen as the cutting edge of American urbanism – has lost ground not only to its historic northern rival, but also to some venerable East Coast cities, as well as the boom towns of Texas and the recovering metropolitan areas of the Southeast.

This divergence became particularly clear to me as I put together the most recent Forbes Best Places for Jobs with Pepperdine University economist Mike Shires. Our rankings focus heavily on momentum: What areas are growing fastest now and have made the best progress over the past decade. For me, a 40-year resident of the Los Angeles Basin (Shires is a native of San Diego), the results were far from encouraging.

To be sure, Los Angeles, Orange County and Riverside-San Bernardino are up somewhat from their dismal showings in past years, in part due to the housing recovery. But none did well enough to ascend even to mediocrity. Yet, of 66 regions with more than 450,000 jobs, Los Angeles ranked No. 49, while Riverside-San Bernardino clocked in at No. 45, and Santa Ana-Anaheim-Irvine did best, with a still-less-than-middling No. 38.

These rankings were way below those registered in the country's emerging economic powerhouse, Texas, which placed a remarkable four regions in the top 10 (Fort Worth, Dallas, Houston, Austin) or rising burgs such as No. 2, Nashville, No. 3, Salt Lake City, and No. 9, Denver. We also got smoked by such low-exposure places as No. 13, Columbus, Ohio, No. 15, Oklahoma City, and No. 16, Indianapolis.

But our relative decline is not merely a reflection of the natural effects of lower costs and better business climate. We also lagged well behind such famously expensive, and hyper-regulated, places as No. 14, Seattle, No. 17, Boston, and No. 18, New York City. Worse of all, Southern California was left completely in the dust by its two great interstate rivals, the No. 1-ranked San Francisco Bay Area and No. 7-ranked San Jose/Silicon Valley. The only California cities to do worse than the Southland were No. 56, Oakland, and No. 57, Sacramento.

Why is the Southern California economy lagging, even in this recovery? Much of the answer can be found by looking at the information sector, which is driving much of the Bay Area's growth. As my luncheon partner, who is investing heavily in the Silicon Valley, suggested, the entire wave of new tech companies has largely bypassed Southern California.

This is not merely a question of achieving less growth, but actually losing ground, while the Bay Area metros soar. Since 2007, for example, the information sector – which includes software, media and entertainment – surged 18 percent in the San Francisco-San Mateo area and by a remarkable 25 percent in the San Jose-Silicon Valley region. In contrast, the Los Angeles information sector declined by 7.3 percent, while in Orange County, once a tech hotbed, it dropped by 21 percent.

These declines impact not only demonstrably tech-oriented jobs, but also professional and business services that often serve tech clients. Over the past five years, these jobs have been growing smartly in San Francisco and decently in Silicon Valley, while declining in both Orange County and Los Angeles. Only recently have these sectors showed any sign of recovery in the Southland, but at a far weaker rate than in the Bay Area.

Why is this happening? Certainly the answers are complex. Historically, the L.A.-Orange County tech economy has been strongly tied to aerospace and defense, and these sectors have been declining under President Barack Obama. The defense sector also has tended to shift toward more politically potent places like Texas, Georgia and Alabama, where politicians actually work on behalf of industrial jobs. With the exception of drone technology, the Southern California region's aerospace industry, as one analyst put it, has become "dormant," a victim of a talent drain and a gradual withdrawal of aerospace giants, most recently, Northrop, from the region.

Like Los Angeles, Silicon Valley's tech community was largely birthed by the Defense Department and NASA, something rarely acknowledged by the region's hagiographers. But, starting in the 1980s, the Bay Area began to apply early innovations in semiconductor design and software to other industries, such as personal computers, the Internet and, more recently, social media and mobile devices, something that has generated not only jobs, but also buzz.

Capital, too, has played a role. The L.A. area has lots of rich people, but a relatively weak venture capital community. The Bay Area has roughly five times as much venture capital – more than $10 billion – as the far more populous L.A.-O.C. region. New York and New England also enjoy far more money in local venture investment firms than does Southern California.

Politics and image-making also has contributed to the Southland's eclipse. California politics are now almost totally dominated by Bay Area politicians – from Gov. Jerry Brown to Lt. Gov. Gavin Newsom and Attorney General Kamala Harris. Both our U.S. senators are from San Francisco and its environs. Their economic orientation, when they have one, tends to be to worship at the altar of allied Bay Area software giants, like Google, and social media firms such as Twitter or Facebook. Life in cyberspace makes less-direct demands on green "progressive" sensibilities than making airplanes or garments, or the work of processing trade with Asia.

In general, the Bay Area economic mindset tends to disdain the tangible economy – manufacturing, wholesale trade, construction – critical to the more diverse and more blue-collar-oriented Los Angeles-area economy. California's tight land-use regulation and soaring energy prices do not much impact the Bay Area giants, since they simply shift their energy-intensive operations to places like Texas or Utah. And, as for soaring housing prices, people who cannot afford Bay Area prices also can be shifted to Salt Lake City, Austin, Texas, or Raleigh, N.C.

In contrast, Southern California, like much of the Central Valley, is far less able to slough off the green-dominated policies of the Bay Area political cliques. Los Angeles, for example, still has 360,000 manufacturing jobs, down more than 18 percent since 2007, and Orange County has an additional 160,000 such jobs, after a drop of 11 percent the past five years. In contrast, San Francisco-San Mateo has only 36,000 industrial jobs. These, too, have been declining rapidly, but have far less impact on the economy than down here.

Then, there's the question of image. According to a recent Bloomberg Businessweek survey, San Francisco ranked as "best city" to live in. Suburban San Jose ranked No. 33.

Los Angeles? Try No. 50, behind such places as Cleveland, Omaha, Neb., Tulsa, Okla., Indianapolis and Phoenix.

In another survey, identifying the top 10 cities for "millennials," Seattle ranked first, followed by such cities as Houston, Minneapolis, Dallas, Washington, Boston and New York. Needless to say, neither Los Angeles nor Orange County made the cut.

Is there something we can do about this decline? I think this is more than just a marketing issue. Southern California, a region that largely invented itself out of combination of real estate speculation and great climate, needs to rediscover the roots of its success. Once our entrepreneurs imagined and forced into being great things, such as massive water and port systems; they dominated the race for space and planned out the suburban dreamscapes of Lakewood, Valencia and the Irvine Ranch. With the possible exception of Elon Musk and Space X, Southern California's entrepreneurial guile is now decidedly low-key – food trucks, ethnic shopping, reality shows, hipster-oriented lofts and shopping areas.

This limited vision extends to politics as well. As recently as the 1980s, the region boasted an aggressive business community that bullied Sacramento and bestrode Washington like a colossus. Now, our business leaders cringe like supplicants before well-funded greens, racialist warlords and public employee unions. We need business and community leaders to match the increasing arrogance and audacity of the Silicon Valley oligarchs, to force legislators to address the needs of our economically diverse, and still tangibly oriented economy.

This also requires that the cultural resources of the region – Hollywood, the fashion industry, universities and colleges – become more engaged in something larger than protecting their narrow interests. At some point, they should realize that, as our region loses luster, so, too, does the fundamental attractiveness of their institutions and industries.

Until this happens, Southern California – despite its cultural richness, ideal climate and great history of economic vigor – will continue to lag, performing, at best, to its current level of underachievement, slouching toward a permanent state of mediocrity.

Joel Kotkin is executive editor of NewGeography.com and a distinguished presidential fellow in urban futures at Chapman University, and a member of the editorial board of the Orange County Register. He is author of The City: A Global History and The Next Hundred Million: America in 2050. His most recent study, The Rise of Postfamilialism, has been widely discussed and distributed internationally. He lives in Los Angeles, CA.

This piece originally appeared in the Orange County Register.



















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Southern CA

Mr. Kotkin, you have an interesting view of what's happening in S. CA. You say you've lived in S. CA for 40 years and yet you suggest that the region's aerospace and defense industries began to decline under the Obama administration. That's not how I remember it. In truth S. CA's aerospace and defense industries got decimated when the first Bush presidency reduced the defense footprint in this country. Hundreds of thousands of jobs were lost in the region. In fact, the impact was so immense over a million people left the region.

Other cities suffered during the defense pullback but LA's reaction to the economic disaster was rather unique.......it essentially did nothing to compensate for all the jobs lost, and instead of trying to retain the well educated, technical employees who worked in those industries and enoourage them to spawn new industries, it did nearly nothing as they left the region. A few years later LA was 'saved' by the building boom caused by the Feds pumping in billions of dollars after the Northridge quake. Unfortunately, all the construction that followed was not too unlike the gilding found in fool's gold. There was very little substance behind the boom.

In the meantime, LA has gotten the reputation of being a lousy place to do business where corruption reigns and where racial animosities bubble right below the surface. Very little of the racial divisions that surfaced during the Rodney King riots have been healed. The city chases after the film industry like a starlet pursuing a director for an acting job. It makes little effort to get any other industries.

And it seems the city's reputation has tainted the rest of the region........Orange County and San Diego appear to have fallen under the same malaise and are no longer the growth engines they once were.

Then there is Joel Kotkin, the author, who counters every bit of good news about American cities with an outdated suburban perspective that you justify by constanting looking at Texas boosterism and hyper growth. You are the product of the place where you live.......the city of a hundred suburbs looking for a center. And now you are reduced to blaming almost everyone else for LA's shortcomings when its people like you who fight every bit of progress in the right direction the city tries to make. Look at the comments your article attracts.........is that the kind of negativism to which you aspire?

And yes, the S. CA region does not have just a marketing problem. Its issues run much deeper than that. If it wants to recover some of its former glory, it needs to stop blaming everyone else for its problems and start looking at why its been screwing up for the past 20+ years. And right after it stops looking to blame others it needs to find the center its been looking for the past 100 years and start making it a true center so it becomes more like the rest of the cities of the world.

California decline emulating the UK's

The US defence spending wind-back at the time of Bush I was of course a "peace dividend" from the collapse of the evil empire of the USSR.

I say that economic and socio-economic decline of once-great nations, States and regions is inevitable once they become anti physical urban growth.

The UK is the classic example. If you want to know where California is headed, look at the UK.

http://www.newgeography.com/content/003291-separation-church-and-urban-p...

And see the argument between Matthew Hall and myself, starting HERE:

http://www.newgeography.com/content/003139-even-after-housing-bust-ameri...

Another Reality that isn't discussed

    "Their economic orientation, when they have one, tends to be to worship at the altar of allied Bay Area software giants, like Google, and social media firms such as Twitter or Facebook. Life in cyberspace makes less-direct demands on green "progressive" sensibilities than making airplanes or garments, or the work of processing trade with Asia.

    In general, the Bay Area economic mindset tends to disdain the tangible economy – manufacturing, wholesale trade, construction – critical to the more diverse and more blue-collar-oriented Los Angeles-area economy. California's tight land-use regulation and soaring energy prices do not much impact the Bay Area giants, since they simply shift their energy-intensive operations to places like Texas or Utah." - Joel Kotkin

Joel I agree in full. But the bay area also has one of the greatest income gaps, between the wealthy,and the poor, then anywhere else in the US. It's largely an economy of those who are in high-skilled labor, and those who service them. Their opposition to Manufacturing, Wholesale Trade, and construction means that they do not champion upward mobility for the migrants within their vicinity that have no skills, or low-skills, beyond menial labor, and have crafted a chosen/preferred "Ceiling" for the poor.

A simple visit to East Palo Alto, East Oakland, Richmond, Vallejo, San Leandro, Newark, or many of the cities along the Bay will reveal the other side of the fence. And what is even more rarely covered is the fact that many of these immigrants or children of immigrants, who discover this unfortunate City-Hall supported "Ceiling," leave in droves, for Portland, for Dallas, or for Salt Lake.

The service economy, as a ceiling, is tolerable, especially for an immigrant who risked a lot, just to come here for the opportunities that this country has to offer, only to settle for working at a restaurant, valeting cars, or doing yard work. But ask any of these immigrant parents, and you will get a depressed sigh when they acknowledge their own children, also settling for the same menial labor that they had to endure, and not able to enter the middle class.

Joining the Middle Class then becomes an elusive dream, these children of immigrant's state of impoverishment becomes the new social norm, they loose their drive, and you now have the beginning of a generational cycle of poverty. And those who manage to make it into college leave with a degree that is worthless, into a hostile labor market, with a loan that amounts to a mortgages worth of debt... how can they even value having a family, or home ownership, when they already have a mortgage's worth on their head?

What I think is slowly happening is a slimming down of the poorer population, to more accurately reflect the labor needs of the service economy that services the wealthy. It will become more like Manhattan, a playground for the rich, only with a far more diverse, high-skill economy.

The elephant in the room

I notice you don't mention the elephant in the room: mass immigration from south of the border.

I think Richwine was wrong in advocating that we discriminate against low IQ and in favor of high IQ individuals or groups. Such an approach is incompatible with the assumption that various population groups do not differ in their cognitive abilities -- that, for example, East Asians are not generally smarter or more academically gifted than immigrants from Mexico.

That's why I support a temporary across-the-board moratorium on all immigration from all countries until we can assimilate and integrate the forty-to-fifty million foreign born minorities (including 11 million undocumented) who are already living in this country. Unless you believe the American people are lacking in the skills and intelligence required to be an economically and politically successful society, it's hard to see on what grounds anyone could possibly object.

I would make one exception however. Unthinkable as it may be, should Israel cease to be viable as a Jewish state in the middle of the Muslim world we should make it clear now that we will allow its citizens to seek refuge in America. Having done so much to encourage that society I think we have incurred a moral responsibility to its Jewish population.

"I would make one exception

    "I would make one exception however. Unthinkable as it may be, should Israel cease to be viable as a Jewish state in the middle of the Muslim world we should make it clear now that we will allow its citizens to seek refuge in America. Having done so much to encourage that society I think we have incurred a moral responsibility to its Jewish population."

Well bless you for your kindness.

The 3 billion that the US spends on Israel is a meaningless amount to Israel, it's a drop in the bucket, or a piss in the ocean. 3 billion, out of an economy of 245,000 billion, is trivial, nonexistent. But that 3 billion dollar "gift" from the American taxpayer, is a small price to pay, to have access to the brightest researchers on the planet, so the American taxpayer is getting back 100x that investment back, in the way of R&D.

You are already the New "Promised Land." And the founders of this great country viewed themselves as the "New Jews." Samuel Adams and Thomas Jefferson even fought viciously to have our national symbol be the Jews in the Exodus, fleeing Egypt, but, the crested Bald Eagle won out.

http://en.wikipedia.org/wiki/File:FirstCommitteeGreatSealReverseLossingD...

And no country has blessed the Jews more then the United States, for which you have been blessed a million times over. Bringing the Jews over would give the US access to more Nobel Prize Laureates in the Sciences then any other nation on Earth, it would enrich culture, and empower immensely the academics, the performing arts, film, and media.

I think you may misunderstand me

Without this compromise I doubt the heads of the major Jewish organizations in America can ever be persuaded to support an immigration pause or time-out at this point in time. The fate of world Jewry has got to be a consideration in the back of their minds and putting myself in their shoes and thinking about history, I can't say I blame them.

The key point is to make sure that concerns about the possible future welfare of world Jewry not be at odds with concerns about welfare of American society as a whole, which could turn out tragically for everyone involved. You would have to be politically naive not to think this is an important consideration. Realism being the first requirement for moral responsibility in this world.

I would also add that a temporary moratorium on immigration could help secure broad American popular support for the state of Israel over the long-term, which may easily unravel in an unraveling middle-class society. We need to align our interests.

Luke Lea